2023 Inflation Adjustments Released

The IRS has just released its 2023 inflation adjustments for many tax provisions. The standard deduction will increase: $900 to $13,850 for single taxpayers; $1,800 to $27,700 for married couples filing jointly; and $1,400 to $20,800 for heads of household. The top tax rate for individuals with income greater than $578,125 ($693,750 for married couples filing jointly) will remain 37%. The other rates will remain 35%, 32%, 24%, 22%, 12% and 10%. For 2023, the personal exemption remains at 0. The personal exemption was eliminated by the Tax Cuts and Jobs Act from 2018–2025. For information on other inflation-adjusted amounts, click here or contact our team to discuss.

The Social Security (SS) “wage base” will also increase to $160,200 for 2023, up from $147,000 for 2022. Wages and self-employment income above this threshold aren’t subject to SS tax. The Federal Insurance Contributions Act (FICA) imposes SS tax and a Medicare tax on employees, employers and the self-employed. There’s no threshold for Medicare tax. All wages and self-employment income are subject to it. The FICA tax rate for employees and employers is 7.65%: 6.2% for SS and 1.45% for Medicare. The self-employed pay both the employee and employer portions. Wages or self-employment income above certain amounts are subject to an additional 0.9% Medicare tax.

The IRS has also released the 2023 Qualified Retirement Plan Amounts: The IRS has released cost-of-living adjustments affecting pension plans and other retirement-related items for tax year 2023. Some of the limits applicable to pension and other retirement plans have increased. For instance, the elective deferral limit for employees participating in 401(k), 403(b), and most 457 plans increased from $20,500 to $22,500 and the limit on annual contributions to a SIMPLE plan has increased from $14,000 to $15,500. The catch-up contribution limit for employees aged 50 and over participating in 401(k), 403(b), and most 457 plans increased from $6,500 to $7,500 and the limit on annual contributions to an IRA increased from $6,000 to $6,500. The $1,000 IRA catch-up contribution for individuals aged 50 or over remains unchanged. The income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2023.

Questions regarding these IRS updates? Contact our team to discuss.

Posted October 25, 2022